U.S. economy showing signs of moderate strength, but unemployment and housing remain weak: Fed Beige Book

The American economy closed out 2010 on a relatively strong note, suggesting an improving economy for this year, according to the Federal Reserve’s “Beige Book” report, a nationwide survey of economic conditions.

Increased consumer spending during the holidays and higher manufacturing spurred a buoyant economic environment in the final months of the year, although many business remain cautious about the current year’s outlook.

“Economic activity continued to expand moderately from November through December,” the Fed said.

“Most Districts indicated that business contacts were positive about the outlook, although still generally cautious.”

Six regions monitored by the Fed, including Chicago and Atlanta, exhibited “modestly to moderately” improving economic growth; while four areas including New York and Boston showed “improving” conditions. Moreover, the report states, that San Francisco “firmed further” and the Minneapolis region “continued its moderate recovery.”

The report stated that manufacturing “continued to recover across all Districts” while Richmond, Chicago and St. Louis “identified a strong flow of new orders.” However, the Philadelphia region said orders were “erratic”.

Another pillar of the economy, housing, remains “weak and sluggish” across most regions, while commercial real estate markets had “mixed results,” the report said.

With respect to consumer spending, the report stated that Boston, Richmond, Atlanta, Chicago, and Kansas City observed consumers positively reacting to promotions and discounting, although Philadelphia and San Francisco reported that retailers relied less heavily on discounting.”

One of the great risks facing 2011 is unemployment which is a 9.4 percent, and is likely to stay at high levels for several more years (as warned by Fed chief Ben Bernanke last week). In The Beige Book, the central bank noted “labor markets appeared to be firming somewhat in most Districts, as some modest hiring beyond replacement was said to have occurred” or “was planned in a variety of sectors.”

The Federal Open Market Committee will next meet on January 25-26.